Sun, Dec 12, 2010 - Page 8 News List

The EU is an example of effects of integration

By Huang Tien-lin 黃天麟

The many problems the EU has been experiencing lately stand in stark contrast to the welcoming praise and cheer that met the Maastricht Treaty when it came into effect in 1993. Back then, everyone, including academics and the media in Taiwan, believed the establishment of the EU would benefit from integration of resources, maximize capital efficiency and increase the speed of economic growth for the EU as a whole. Optimism reached its peak in 1998 when the European Central Bank was established and then in 1999, when the euro was officially introduced.

In its early days, we did see economies on the fringes of the EU like Spain, Greece and Ireland benefit from the injection of funds from more developed EU nations and from early harvest lists. However, good things never last and as economic integration progressed, hubs and frontier regions emerged — the so-called hub-spoke effect.

While the problems caused by these hubs are decreasing, they are still evident. The formation of a hub does not happen by mere chance. Factors like land and population size, geography, culture and history are all necessary for a place to become a hub.

Germany, with its large population, land size and central location gradually established its position as a hub under the normal workings of the market economy. Once Germany had developed into a hub, it exerted an almost magnetic power to absorb resources, money and people from neighboring countries. Unless external forces come into the picture, this magnetic power will only get stronger as transport becomes more convenient and as technological advancements are made.

Recently, EU officials have also had to admit that “two-track” development is occurring among eurozone states, with Germany experiencing strong economic growth while countries with heavy debt burdens are experiencing stagnation. According to reports, German consumer spending over the holiday season will have grown by 2.5 percent to 76.9 billion euros (US$101.7 billion) compared with the same time last year, while overall consumption for the eurozone as a whole will shrink by 2.5 percent compared with last year.

Strangely, as countries on the fringes of the EU are heavily in debt and as unemployment levels in the eurozone are at a 12 year high, European businesses are experiencing big profit growth. Statistics show that these businesses have US$700 billion in cash that they could use at any time. This clearly shows that the benefits of integration are concentrated in the hands of big business and capitalists. It is therefore no wonder they keep singing the praises of economic integration, capital liberalization and globalization.

Now that the Economic Cooperation Framework Agreement has been signed, Hong Kong can serve as an example for us, as can the EU, for they both show that while the early harvest lists given out by large economies to smaller economies may look nice, in the long term, large economies often absorb these resources. Both these examples show that the greater the difference in economic size, the closer cultural and language ties and the closer transportation links, the more resources the hub economy will be able to absorb.

There is not a huge difference in size between the different EU member states, and they each have their own language. Therefore the hub-spoke effect within the EU should not be very significant, making this region well suited to economic integration. Despite that, the effect has appeared. If this happens in the EU, wouldn’t it be tantamount to suicide for Taiwan, with an area of only 36,000km2, to even entertain the idea of economic integration with the vast and authoritarian China?

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